The SEC charged an investment advisory firm located outside Tacoma, Wash., with engaging in hundreds of principal transactions through its affiliated broker-dealer without informing clients or obtaining their consent.
Strategic Capital Group LLC, which is additionally charged with distributing false and misleading advertisements to investors, agreed to pay nearly $600,000 to settle the SEC’s charges. The firm’s CEO was charged with causing some of the firm’s violations, and agreed to pay a $50,000 penalty to settle the charges against him.
In a principal transaction, a firm acting for its own account or through an affiliated broker-dealer buys a security from a client account or sells a security to it. Principal transactions can pose potential conflicts between the interests of the adviser and the client, and therefore advisers are required to disclose in writing any financial interest or conflicted role when advising a client on the other side of the trade. They also must obtain the client’s consent.
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